Fundraising in the venture capital (VC) industry has completely frozen due to continued high interest rates. The number of large venture funds valued at more than 100 billion won, a barometer of a booming VC market, has fallen to just five in the first three quarters of this year. The figure was 17 in 2022 and 21 in 2021.
The number of large venture funds with more than 100 billion won in total capitalization fell to just five from January to September 2023, according to industry sources on Dec. 11. This is a year-on-year decline of 70 percent. Experts forecast that it will be a single digit for the first time in four years since there were only six in 2019.
Large venture funds are often seen as a barometer of venture investment and financial market activity. Large venture funds mainly invest in mid- to late-stage startups, and an increase in the number of large funds is a sign of a healthy market for recouping investment funds such as IPOs.
The number of large venture funds with more than 100 billion won had steadily increased since 2009 when Intervest, one of Korea’s largest VC companies, first formed the New Growth Investment Cooperative.
However, industry insiders analyze this year as a year of an unprecedented slump. This is directly attributable to institutional investors putting a halt to venture investments. In particular, pension funds and mutual aid associations which are big players in venture investments invested only 107.6 billion won in venture funds in the first half of this year, 80 percent down from a year earlier.
Under these circumstances, the decline in the establishment of large venture funds is leading to a crisis of small and medium-sized VC companies. This is because large VC companies are ramping up the sizes of their venture funds as investor organizations are conservatively managing their funds and prioritizing investments in VC companies which have proven their excellent management capabilities. In fact, the number of large venture funds established in the first three quarters of this year plummeted but the total amount raised per fund was 324.3 billion won, up from 177 billion won in the previous year.
Most small and medium-sized VC firms have been unable to raise venture funds and have lost capital. This year, eight VC firms received corrective orders from the Ministry of SMEs and Startups for capital losses. This is the highest number since 2020. The number of newly registered VC firms also plunged from 42 in 2022 to 13 at the end of September 2023.